Somalia’s Inaugural Licensing Round: What Do We Know?

Until recently, Somalia’s once-thriving petroleum industry had lain dormant for decades.

The overthrow of Mohamed Siyad Barre’s regime in 1991 and resulting civil war forced operators including ConocoPhillips, Shell (Pectin), Eni, Amoco, Total, Texaco, BP and Chevron to declare force majeure and hurriedly leave the country. Since then, security threats and lack of infrastructure have made the region a no-go for operators.

Yet, the past few years have seen the first crucial steps taken towards reigniting activity in the sector. In May of 2019, a new Petroleum Law and Revenue Sharing Agreement were signed, followed by the announcement of an offshore licensing round (which was initially deferred). This year, The Somali Petroleum Authority (SPA) was established, with Ibrahim Ali Hussein appointed as Chairman and CEO (more on this below), and the promised licensing round, in partnership with TGS and IHS Markit, was officially opened to bidders. So, how does Somalia shape up as an opportunity?

Below Ground Risk

Somalia is, as any petroleum geologist will tell you, one of the last truly frontier passive margins in the world. The seven offshore blocks on offer in this licensing round stretch from the country’s northern (Obbia Basin) to southern coast (Jabu-Lamu Basin). Each block is roughly 5000sqkm in size. The areas are covered by a significant amount of seismic, chiefly two 2D surveys, SOMA-14 and Somalia-15, which were carried out in 2014 and 2015 respectively. It is worth noting, however, that only one nearshore well has been drilled in the country. According to the SPA, exploration is targeted to begin in March 2021.

Ventura International Energy CEO, Scot Fraser, has conducted proprietary research into the blocks on offer. His advice to any interested companies is to drill as many wells as possible in the large blocks: “The companies that are bidding need to be active for the industry to be sustainable. One well in a block will probably condemn the potential of the basin […] There are a variety of different plays and the blocks are large, so any campaign that allows you to mitigate some of those risks and separate the dependencies is clearly going to be to the advantage of announcing that first commercial opportunity.”

Above Ground Risk

Perhaps the most important consideration for any organisation seeking to do business in the Horn of Africa is security; the region has achieved worldwide renown for piracy. But Phil McDonald, Regional Director at Castor Vali, says that this phenomenon has now been largely brought under control: “I have no evidence or reason to see a return to prominence [of piracy] or a spike as it was five years ago […] however the risk is still there and that illustrates the need for robust security mitigation measures”. The figures speak for themselves, attacks have fallen from a high of 160 reported in 2011, to just two this year. Experts have attributed this fall to three international naval taskforces operating in the area, as well as anti-piracy measures adopted by the governments of Somalia and the autonomous region of Somaliland.
Though security risks at sea have fallen significantly, the threat posed by terror groups including IS and Al-Shabaab remain a significant consideration on-land. IS militants largely operate in the Puntland region and target the Puntland Security Forces, but have recently carried out attacks on the outskirts of Mogadishu, the country’s capital. Al-Shabaab meanwhile are largely active in the south and centre of the country, particularly in rural areas.

The Government View

As mentioned above, 2020 has seen the establishment of the Somali Petroleum Authority, which will work alongside the existing Ministry of Petroleum and Mineral Resources (led by H.E Mohamed Abdirashid Ahmed). New CEO Ibrahim Ali Hussein states its mission as being “to apply the principles of openness, accountability, transparency and non-discrimination in procedures and systems”.

One of the SPA’s greatest challenges will be to get the buy-in of regional governments and clan leaders. This is off to a promising start; the SPA recently appointed six directors, each from a different state (Banadir Regional Authority, Hirshabelle State, Galmudug State, South West State, Jubaland State and Somaliland State). This is in line with the country’s revenue sharing agreement, which divides any proceeds from petroleum between the various parts of the country.

Historically, the Somali Federal Government has struggled with national projects involving all the country’s states, who each bring to the table their own views and agendas, however Mr Hussein is emphatic that “Somalia is now open for business”.

To learn more about Somalia’s inaugural licensing round, watch the “Somalia Licensing Round: De-Risking Above Ground Factors” from AOW Virtual, available on-demand now.

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